solution

Analyzing Cash from Operations (Direct)

Refer to the financial statements of ZETA Corporation reproduced in assignment Case CC–2 of the Comprehensive Case (following Chapter 11).

Required:

a. Prepare a schedule computing cash flows from operations using the direct method. Include revenues and expenses of discontinued operations. Include a list of important assumptions and weaknesses as a note to your cash statement. Support all amounts shown. (Hint: Discontinued operations cannot be separated from continuing operations, but unadjusted income and expense of discontinued operations can be.)

b. ZETA’s statement of cash flows reports income taxes paid in Year 6 of $2,600. Verify this amount independently.

c. Reconcile the change in “accounts payable and accruals” reported in the statement of cash flows with the number derived from the balance sheet. Explain the reason(s) for any difference. (Hint: Refer to notes 3 and 4.)